Nippon predicts global steel industry may need 2-3 years to recover from the current downturn

Japan - 2009 January 18

Japan's Nippon Steel believes the global steel industry may need two to three years to recover from the current downturn, its chairman said.

The company does not expect an agreement with Toyota Motor Corp on cutting steel prices until iron ore import deals are completed, Akio Mimura also told reporters.

Nippon Steel's regional peer, South Korean company POSCO, warned this week of lower sales and output in 2009 and the worst January performance in its 40-year history as steel demand continues to remain weak, despite massive output cutbacks globally.

"The global steel industry had a strong growth over the past five years and in return it may take a long time to recover, probably two to three years," Mimura said.

Mimura reiterated that Nippon, the world's No. 2 steelmaker, may have to extend production cuts to more than the 2 million tonnes it is currently planning for the six months to end-March but it has no plan to shut down a blast furnace.

Its domestic rival JFE became the first Japanese company to idle a blast furnace this month, as demand for everything from autos to home appliances slumps due to a deepening global economic recession.

Toyota Motor, the world's top auto maker and the single largest customer of Nippon and JFE, spooked the industry supply chain last month by warning that it may see its first annual operating loss in 71 years.

It is slashing production and demanding a cut in steel prices. The Nikkei newspaper reported last month that Toyota had demanded Nippon and other steelmakers cut steel prices by 30 percent.

"It (the talks with Toyota) will be very difficult and... will be completed after iron ore and coking coal import talks, which haven't started yet," Mimura said.

Asian steelmakers are sure to see a fall in iron ore prices for the first time in seven years, with some analysts expecting a decline of up to 40 percent.

Iron ore prices have nearly doubled and coking coal prices have tripled this business year amid tight supply of the major inputs in steel making.

JFE said earlier this month it wanted prices of iron ore to be cut at least to 2007/08 levels, meaning Brazilian miners must cut by at least 39 percent and their Australian counterparts by around 45 percent.

Mimura declined to comment on the level of cuts that Nippon wants in negotiations with global mining majors -- BHP Billiton, Rio Tinto and Vale-- for the year starting April 1.

His remarks were made late on Saturday for release by news media early on Sunday.